FHA reverse mortgage rule won't stop defaults

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The FHA 203k loan program provides home buyers the opportunity to buy and fix up a property, without exhausting their personal savings.

The FHA's recent announcement that it will cut fixed-rate reverse mortgages from its product line will not prevent borrowers from defaulting, a reverse mortgage lender has claimed.

Claudia A. Quintero of Strock & Tanner Mortgage Corp. in Miami, Fla., has said adjustable-rate reverse mortgages may stave off default temporarily, but that borrowers are just as likely to eventually default as their equity dries up.

While fixed-rate options saw borrowers receiving large up-front sums of cash for the equity in their home, adjustable-rate reverse mortgages mean borrowers will receive smaller payments each month in order to preserve equity. But Quintero argued that property taxes, insurance and upkeep will still hit borrowers who use up their equity.

Although borrowers may receive less cash each month, Quintero said the adjustable-rate option does not compel borrowers to set aside cash for expenses when the equity in their home is exhausted.

The FHA's discontinuation of fixed-rate reverse mortgage products has significantly dented Quintero's business, she said. She argued that smaller upfront payments provided retirees less motivation to stay in their home, and therefore less desire to take out a reverse mortgage.

COMMENTS

by Amy Catling| 8/5/2013 3:23:30 PM

I agree with Ms. Quintero, removing the Fixed rate home equity conversion mortgage full draw option will not fix the problem of borrower tax and insurance defaults nor will it make the FHA MIP fund more stable even with the recent changes. However, it will keep unscrupulous reverse mortgage mortgage originators from steering borrowers into a full draw fixed rate HECM mortgage without regard to product suitability because they are more profitable. When a borrower does not need to withdraw all the funds at closing an adjustable rate HECM with credit line option may be a more suitable option. Unfortunately, it is not clear in the article above for a reader to know which ARM option Ms Quitero is comparing to. Is it the credit line with the credit line growth factor built in where the borrower can withdraw what they need only when they need t? Is it a tenure payment option where the borrower receives only a set amount monthly for as long as they meet the requirements of the mortgage? In my opinion, the real problem with the current home equity conversion is that lender paid borrower compensation on the adjustable rate mortgage HECM is calculated based on the unpaid balance (UPB) at closing as well as lenders profit margins, the higher the margin, the higher the interest rate to the borrower the larger the originators compensation. This leads to a greater risk for originators to steer borrowers into full draw mortgages on either a fixed rate HECM's or an adjustable rate HECM. As it is now, he current HECM program does not have sufficient "anti steering" regulations to keep originators from steering a borrower from an ARM HECM to a closed end full draw Fixed HECM. The HECM Adjustable rate mortgage credit line is also not a "covered mortgage" under any current LO Comp Rule nor Anti-Steering Regulations. Until this loop hole is closed which allows borrowers to be steered to more profitable higher UPB with higher lender margins and additional regulations and disclosures required there will be no fix. I recommend that we look back to the original mission of the home equity conversion mortgage please read http://portal.hud.gov/hudportal/documents/huddoc?id=051613HFSC_WTestFinal.pdf for a reminder of what the original intention of the program and lets work together as an industry to protect our seniors and fix the real issues at the heart of the problem.

by Reverse Mortgage| 8/29/2013 4:53:43 AM

http://reverses-mortgage.org : Reverse Mortgage is a sort of mortgage product works as a way to transfer the amount of equity in a home to the owner. The equity amount will be paid out to the owner over a lengthy period of the time.

by Bayview Mortgage, Inc.| 9/1/2013 8:48:15 PM

Reverse mortgages always go into foreclosure. reverse mortgages should have a no qualifying assumption option. When the borrower dies or is moved into a nursing home. there should be an option for an relative or buyer to assume the note and home.